T-2129-78
Canadian Javelin Limited (Plaintiff)
v.
Frederick H. Sparling (Defendant)
Trial Division, Mahoney J.—Ottawa, June 26 and
28, 1978.
Practice — Application to strike out — Statement of claim
disclosing no reasonable cause of action — Defendant
appointed inspector under s. 114(2) of Canada Corporations
Act, and conducted investigation of plaintiff — Plaintiff's
action seeking declaratory judgment (a) that defendant is
biased, (b) that defendant's appointment as inspector is
improper, and (c) that defendant's seeking order directing
investigation is improper and for improper purposes with mala
fides — Whether or not there is a duty imposed on inspector to
act fairly or judicially in performance of duties — Canada
Corporations Act, R.S.C. 1970, c. C-32, s. 114(2) — Federal
Court Rule 419(1)(a).
Defendant, the Director, Corporations Branch, Department
of Consumer and Corporate Affairs, seeks an order under Rule
419(1)(a) striking out the statement of claim and dismissing
the action on the ground that it discloses no reasonable cause of
action. After a struggle for control of plaintiff, the Wismer
group who had gained control but subsequently lost it at a
shareholders' meeting to the Doyle group, sought an order
under section 114(2) of the Canada Corporations Act, and
defendant recommended to the Minister that that order be
sought. The Minister appointed the defendant inspector and
instructed him to secure evidence to establish grounds for that
application. Defendant contacted the Wismer group, the
Quebec Securities Commission, the U.S. Securities and
Exchange Commission and the R.C.M.P., but not the plaintiff,
its officers or directors elected at the shareholders' meeting.
Plaintiffs action seeks a declaratory judgment that (a) the
defendant is biased against the plaintiff, or that there is reason
able apprehension of bias, (b) the defendant's appointment as
inspector is for improper purposes, and hence null and void and
(c) the defendant sought the order directing the investigation of
the plaintiff for improper purposes with mala fides.
Held, the application is allowed. An inspector's functions
under section 114 are purely investigative and the law imposes
no duty on him to act fairly or judicially in their performance.
The Court is not aware of a reported case in which an
allegation of bias has been the basis of a claim of denial of
natural justice by purely administrative authority. Bias per se
does not change the essential quality of the issue. If an inspec
tor is not obliged to adhere to the principles of natural justice in
carrying out his functions under section 114, his failure to carry
them out is no more fatal to their performance if occasioned by
bias than, for example, denial of the opportunity of an appro
priate hearing. The making of the declaration as to the defend-
ant's bias, or the reasonable apprehension thereof, would be
devoid of legal effect and serve no useful purpose. The other
allegations sought are really aspects of that already dealt with.
The perceived impropriety and bad faith depend entirely on the
perceived bias. If bias is no bar to his acting as inspector, it
cannot be a bar to his seeking to initiate the investigation.
APPLICATION.
COUNSEL:
Michael Phelan for plaintiff.
G. W. Ainslie, Q.C., and P. Barnard for
defendant.
SOLICITORS:
Herridge, Tolmie, Ottawa, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for order ren
dered in English by
MAHONEY J.: The defendant seeks an order
under Rule 419(1)(a) striking out the statement of
claim and dismissing the action on the ground that
the statement of claim discloses no reasonable
cause of action. The defendant is the Director,
Corporations Branch, Department of Consumer
and Corporate Affairs and has been appointed an
inspector to investigate the plaintiff under subsec
tion 114(2) of the Canada Corporations Act.' The
plaintiff seeks a declaratory judgment:
(a) that the defendant is biased against the
plaintiff or that there is a reasonable apprehen
sion of such bias.
(b) that the defendant's appointment as
inspector was sought for improper purposes and
is null and void.
(c) that the defendant sought the order
directing the investigation of the plaintiff
improperly, for improper purposes with mala
fides.
' R.S.C. 1970, c. C-32, as amended by R.S.C. 1970 (1st
Supp.), c. 10, s. 12.
Certain injunctive relief, which need not be par
ticularly dealt with, is also sought.
Section 114 is lengthy and is reproduced in its
entirety in the appendix hereto. The material facts
alleged in the statement of claim follow.
On March 6, 1976, a group of the plaintiff's
directors (the "Wismer group") dismissed its offi
cers and took control of the management of its
business. On June 18, 1976, an order under section
106 of the Act was made by the Quebec Superior
Court directing that a shareholders' meeting be
held July 29 and 30, 1976, for the purpose of
electing a new board of directors. This order was
obtained on the application of shareholders which
may conveniently be called the "Doyle group".
The Minister of Consumer and Corporate
Affairs, acting through and on the advice of the
defendant had sought, unsuccessfully, to delay the
holding of the July 30 meeting on the ground that
the proxy solicitation did not comply with sections
108.1 to 108.8 of the Act. Any delay would have
continued the Wismer group in office. The
Wismer group, both publicly and directly to the
defendant, stated the intention of seeking to put
the plaintiff in receivership if ousted. The Doyle
group, as expected, carried the meeting and the
Wismer group was ousted.
After the meeting (a) the Wismer group
requested the defendant to seek an order under
subsection 114(2) and (b) the defendant recom
mended to the Minister that such an order be
sought. The statement of claim does not state
flatly that (b) followed and was occasioned by (a)
but it may intend to leave that impression. In any
event, the Minister instructed the defendant to
secure the evidence necessary to establish the
grounds for such an application. To obtain that
information the defendant contacted, inter alia,
the Wismer group, the Quebec Securities Commis
sion and the Securities and Exchange Commission
of the United States of America. The defendant, at
no material time, contacted the plaintiff, its offi
cers or the directors elected at the July meeting.
The defendant also sought evidence from the
R.C.M.P. On May 17, 1977, on ex parte applica
tion by the Minister, the Restrictive Trade Prac-
tices Commission ordered the investigation of the
Company under subsection 114(2) and appointed
the defendant inspector.
It is further alleged that the defendant's motive
in seeking the order and his own appointment as
inspector was to permit him to confirm his advice
to the Minister and to carry out arrangements he
had made with the two securities commissions for
the exchange of information. Those arrangements
were not disclosed to the Restrictive Trade Prac
tices Commission prior to his appointment. Final
ly, a conflict of interest is alleged between the
defendant's capacity as senior adviser to the Min
ister in seeking the investigation order and in his
capacity as inspector under it. That conflict of
interest is not self-evident and no facts are particu
larly alleged that lead to that conclusion.
The burden of the foregoing allegations is, I
take it, that the defendant had determined, not
later than July or August, 1976, that an order
should go under subsection 114(2) and that he
subsequently exerted himself to see that it did.
That determination necessarily involved a conclu
sion on the defendant's part that the plaintiff or
persons concerned with it may have been involved
in activities within the contemplation of one or
more of the paragraphs of the subsection. Given
the criteria which must be met before the order
can be made, 2 I should be hard pressed to con
clude, at this stage of the proceedings, that the
plaintiff is not entitled to go to trial on the ques
tion of the defendant's bias if a resolution of that
issue of fact in the plaintiff's favour would, in law,
lead, at the very least, to
a declaration which, though devoid of any legal effect, would,
from a practical point of view, serve some useful purpose. 3
2 Weight Watchers International Inc. v. Daniels (1973) 10
C.P.R. 19.
3 Landreville v. The Queen [1973] F.C. 1223 at p. 1230.
A careful review of section 114 leads me to
conclude that, under it, an inspector's functions
are purely investigative and that the law imposes
no duty on him to act fairly or judicially in their
performance. 4 Unlike the counterpart British
legislation 5 considered in Re Pergamon Press
Ltd., 6 section 114 does not vest the inspector with
the dual function of investigating and reporting;
the decision as to the report is entirely that of the
Restrictive Trade Practices Commission. Counsel
for the plaintiff made much of the inspector's
discretion, under subsection 114(18) to discontinue
an investigation, but that is a fragile peg on which
to hang the argument that the inspector's func
tions are to be exercised judicially which is ren
dered even more fragile by subsection 114(21); the
final discretion lies with the Minister, not the
inspector.
I have not been referred to, nor have I found, a
reported case in which an allegation of bias has
been the basis of a claim of denial of natural
justice by a purely administrative authority. I do
not however see that bias, per se, in any way
changes the essential quality of the issue. If an
inspector is not obliged to adhere to the principles
of natural justice in carrying out his functions
under section 114, his failure to so carry them out
is no more fatal to their performance if occasioned
by bias than, for example, by denial of the oppor
tunity of an appropriate hearing.
The making of the declaration as to the defend
ant's bias, or the reasonable apprehension thereof,
which the plaintiff seeks, would be devoid of legal
effect and serve no useful purpose. A policeman is
simply not expected by the law to approach an
investigation with the attributes of the judge who
may eventually be called upon to consider its
results and a declaration that he does not have
those attributes would be utterly futile.
° Calgary Power Ltd. v. Copithorne [1959] S.C.R. 24.
5 Companies Act, 1948, 11 & 12 Geo. 6, c. 38, ss. 164 to 169.
Generally speaking, under the British scheme the inspector has
the functions assigned to both the inspector and RTPC by the
Canadian, while the Board of Trade has the Minister's
functions.
6 [1970] 3 All E.R. 535.
The other declarations sought are really aspects
of that already dealt with. The perceived impro
priety and bad faith depend entirely on the per
ceived bias. If bias is no bar to him acting as
inspector, it cannot be a bar to his seeking to
initiate the investigation or seeking his own
appointment as inspector to conduct it. To contin
ue the analogy, the motives of a policeman in
obtaining authorization for an investigation and
his own assignment tothe_case are immaterial and
a declaration as to their character would have no
legal effect and serve no useful purpose. It remains
for the judge, in this case the Restrictive Trade
Practices Commission, to observe the principles of
natural justice and the Act, particularly subsec
tions 114(24) through (29), certainly contemplates
that it do so.
The defendant is entitled to the order sought.
The defendant did not ask for costs.
ORDER
The statement of claim is ordered to be struck
out as disclosing no reasonable cause of action and
the plaintiff's action against the defendant is dis
missed without costs.
APPENDIX
Investigations
114. (1) Five or more shareholders holding shares represent
ing in the aggregate not less than one-tenth of the issued capital
of the company or one-tenth of the issued shares of any class of
shares of the company may apply, or the Minister on his own
initiative may cause an application to be made, to the Restric
tive Trade Practices Commission established under the Com
bines Investigation Act (hereinafter called the "Commission"),
upon reasonable notice to the company or other interested party
or ex parte if the Commission is of the opinion that the giving
of notice would in view of the allegations made by the appli
cants or on behalf of the Minister unduly prejudice any investi
gation that might be ordered by the Commission, for an order
directing an investigation of the company in respect of which
the application is made.
(2) Where it is shown to the Commission by the Minister or
upon the solemn declaration of the applicant shareholders that
there are reasonable grounds for believing that in respect of the
company concerned,
(a) its business or the business of a company affiliated
therewith is being conducted with intent to defraud any
person;
(b) in the course of carrying on its affairs or the affairs of a
company affiliated therewith, one or more acts have been
performed wrongfully in a manner prejudicial to the interests
of any shareholder;
(c) it or a company affiliated therewith was formed for any
fraudulent or unlawful purpose or is to be dissolved in any
manner for a fraudulent or unlawful purpose; or
(d) the persons concerned with its formation, affairs or
management, or the formation, affairs or management of a
company affiliated therewith, have in connection therewith
been guilty of fraud, misfeasance or other misconduct,
the Commission may issue its order for the investigation of the
company, and appoint an inspector for that purpose.
(3) An order made under subsection (2) shall prescribe the
scope of the investigation, but the Commission may, from time
to time on the application of the inspector or the Minister,
amend its order by extending or limiting the scope of the
investigation as prescribed by the Commission.
(4) Where an application is made under subsection (1) by
shareholders, the applicant shareholders shall give the Minister
reasonable notice thereof; and the Minister and the company or
any other party who has been given notice of the application, or
an authorized representative of any of them, is entitled to
appear in person or by counsel to examine the application and
supporting material, to cross-examine the applicants and to be
heard at any hearing of the application.
(5) If the inspector considers it necessary for the purpose of
an investigation ordered under subsection (2), he may investi
gate the affairs and management of a company that is or was
affiliated with the company being investigated thereunder
unless the order expressly restricts the investigation to the
affairs and management of that last mentioned company.
(6) Subject to subsection (8), in any investigation under this
section, the inspector appointed therefor or any representative
authorized by him may enter any premises on which the
inspector believes there may be evidence relevant to the matters
being investigated and may examine any thing on the premises
and may, for further examination, copy, or have a copy made
of, any book or paper, or other document or record that in the
opinion of the inspector or his authorized representative, as the
case may be, may afford such evidence.
(7) Every person who is in possession or control of any
premises or things mentioned in subsection (6) shall permit the
inspector or his authorized representative to enter the premises,
to examine any thing on the premises and to copy, or have a
copy made of, any document or record on the premises.
(8) Before exercising the power conferred by subsection (6),
the inspector or his authorized representative shall produce a
certificate from a member of the Commission, which may be
granted on the ex parte application of the inspector, authoriz
ing the exercise of such power.
(9) All directors, officers, managers, employees and agents
of a company, or of a company affiliated therewith, that is
being investigated pursuant to this section shall, upon request,
produce to the inspector or his authorized representative, on
presentation by him of the written authorization of a member
of the Commission to make such request, all documents and
records in their custody or control that relate to the affairs or
management of the company being investigated; and for the
purposes of this section an auditor or banker of the company is
an agent of the company.
(10) On ex parte application of the inspector or on his own
motion a member of the Commission may order that any
person resident or present in Canada be examined upon oath
before, or make production of any books or papers or other
documents or records to the member or before or to any other
person named for the purpose by the order of the member, and
the member or the other person named by him may make such
orders as seem to him to be proper for securing the attendance
of such witness and his examination and the production by him
of any books or papers or other documents or records, and may
otherwise exercise, for the enforcement of such orders or pun
ishment for disobedience thereof, all powers that are exercised
by any superior court in Canada for the enforcement of subpo
enas to witnesses or punishment of disobedience thereof.
(11) The Chairman of the Commission may order that all or
any portion of the proceedings before the Commission, or
before a member of the Commission or a person named by
order of a member of the Commission to examine a witness
under oath, shall be conducted in private.
(12) Any person summoned pursuant to subsection (10) is
competent and may be compelled to give evidence as a witness.
(13) A member of the Commission or any person named by
a member of the Commission to examine a witness under oath
may allow any person whose conduct is being investigated to be
present at a hearing held pursuant to this section and if he is
present at any hearing he is entitled to counsel.
(14) A member of the Commission or other person named
by a member of the Commission to examine a witness under
oath shall not exercise power to penalize any person pursuant to
this section, whether for contempt or otherwise, unless, on the
application of the member, a judge of the Federal Court of
Canada or of a superior court has certified, as such judge may,
that the power may be exercised in the matter disclosed in the
application, and the member has given to the person twenty-
four hours notice of the hearing of the application or such
shorter notice as the judge deems reasonable.
(15) Every person summoned to attend pursuant to this
section is entitled to the like fees and allowances for so doing as
if summoned to attend before a superior court of the province
in which he is summoned to attend, which fees and allowances
shall be paid as part of the expenses of the investigation.
(16) Orders to witnesses issued pursuant to this section shall
be signed by a member of the Commission,
(17) The Minister may issue commissions to take evidence in
another country, and may make all proper orders for the
purpose and for the return and use of evidence so obtained.
(18) At any stage of an investigation under this section, if
the inspector is of the opinion that the matter being investigat-
ed does not justify further investigation, he may discontinue the
investigation, but an investigation shall not be discontinued
without the written concurrence of the Commission in any case
in which evidence has been brought before the Commission.
(19) Where the inspector discontinues an investigation, he
shall thereupon make a report in writing to the Minister
showing the information obtained and the reason for discon
tinuing the investigation.
(20) In any case where an investigation made on the applica
tion of shareholders under this section is discontinued, the
inspector shall inform the applicants of the decision giving the
grounds therefor.
(21) On written request of the applicant shareholders or on
his own motion, the Minister may review the decision to
discontinue the investigation, and may, if in his opinion the
circumstances so require, instruct the inspector to make further
investigation.
(22) With the written concurrence of the Commission, the
inspector may, at any stage of an investigation, and in addition
to, or instead of, continuing the investigation, remit any docu
ments or records, or returns or evidence to the Attorney
General of Canada for consideration whether an offence has
been or is about to be committed against any statute, and for
such action as the Attorney General may be pleased to take.
(23) At any stage of an investigation
(a) the inspector may, if he is of the opinion that the
evidence obtained discloses a circumstance alleged under
subsection (2), or
(b) the inspector shall, if so required by the Minister,
prepare a statement of the evidence obtained in the investiga
tion, which shall be submitted to the Commission and to each
person against whom an allegation is made therein.
(24) Upon receipt of the statement, the Commission shall fix
a place, time and date on which evidence and argument in
support of the statement may be submitted by or on behalf of
the inspector, and at which the persons against whom an
allegation has been made in the statement shall be allowed full
opportunity to be heard in person or by counsel.
(25) The Commission shall consider the statement submitted
by the inspector under subsection (23) together with any
further or other evidence or material submitted to the Commis
sion, and shall, as soon as possible thereafter, report thereon to
the Minister.
(26) A report of the Commission under subsection (25) shall
be made public by the Minister unless in the opinion of the
Commission, given in its report to the Minister, it is undesirable
in the public interest or unnecessary to publish the report or
any part thereof in which case the report or the part so reported
upon shall not be published.
(27) In its report to the Minister under subsection (25), the
Commission may, if it considers it in the public interest to do
so, request the Minister to institute and maintain or settle
proceedings in the name of the company whose affairs and
management were the subject of the investigation and report;
and the Minister is hereby vested with all necessary powers in
that regard.
(28) A person who is being examined pursuant to this
section is entitled to counsel.
(29) No report shall be made by the Commission under
subsection (25) against any person unless that person has been
allowed full opportunity to be heard as provided in this section.
(30) For the purposes of this section, the Commission or any
member thereof has all the powers of a commissioner appointed
under Part I of the Inquiries Act.
(31) A document purporting to be certified by an inspector
to be a copy made pursuant to this section is admissible in
evidence and has the same probative force as the original
document would have if it were proven in the ordinary way.
(32) A person who
(a) fails to permit an inspector to enter upon any premises or
to make any inspection in pursuance of his duties under this
section, or
(6) in any manner obstructs an inspector in the execution of
his duties under this section,
is guilty of an offence and is liable on summary conviction to a
fine not exceeding one thousand dollars or to imprisonment for
a term not exceeding six months or to both.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.